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"Housing Bubble 2.0" - Same As "Housing Bubble 1.0"; Just Different Actors

Tyler Durden's picture


Submitted by Mark Hanson via,

In order to achieve the greatest risk/reward asymmetry from the 2014 single-family housing stimulus “hangover”, or “reset”, happening right now you must change the way you think about this asset class.  When doing so, clarity emerges (at least to me).

Things come into mind, such as;

When other asset classes go through periods of excessive price appreciation or returns, most reasonable people worry that a “consolidation” or “correction” could happen at any time.  In large part, this fear can keep an asset price higher for longer than anybody ever thought possible.  However, with respect to housing, when prices are moving higher, not a single soul will ever forecast a “consolidation” or “contraction”, rather periods of “less appreciation”.

Or, when ”greater fool” trades consisting of highly populated cohorts blow up there are serious consequences like we saw when housing crashed in 2008-09.  But, at least, because the demand base is so wide you have ‘some’ heads to hit the bid all the way down.  However, when greater fool trade cohorts are razor thin like in “Housing Bubble 2.0″ – local area private investors and a hand-full of giant PE firms – extreme volatility is almost certain.

In this short note, I outline where my research is going at the first of the year supporting ideas about why a “strong economy” is negative for this housing market;  houses are far “more expensive” today then from 2003-2007 (i.e., “affordability” much worse); and how everybody has been “fooled by stimulus” and unprecedented monetary policy, yet again.

This report — which I am in the process of turning into a ppt presentation — establishes what US housing has really become over the past 12-years and in my opinion makes it far easier to time its unprecedented volatility and forecast the outcomes that since 2002 have fooled most of the people most of the time.

 This housing market is “resetting” right now;  for the third time in six years. It might look and feel a little different, but as I detail in this note, it’s not really different this time around.

1)  Overview, Housing Bubble 1.0 vs. Bubble 2.0;  Same flicker, different actors

We can all agree that extraordinary monetary policy and excessive speculation can cause price distortions and potential bubbles in almost any asset class.  I think we can also agree that in 2006 housing was in a legitimate “bubble”.  I contend that this housing market is in a bubble, right here and now.

Most have completely forgotten — or are too young to remember — what the 2003 to 2007 housing and finance era was all about.  It’s so wild to me, for instance, when I constantly hear economists or the media rattle off “affordability” comparisons between then and now;  with such confidence that houses have not been as affordable as they are today in decades.  Of course, invariably, they assume everybody always used 30-year fixed rate loans when on the contrary, from 2003 to 2007, these were the “minority” of originations.  Not acknowledging, or normalizing “affordability” to account for this, radically changes everything.

At the superficial level, the misguided belief about today’s superior “affordability” makes sense because during Bubble 1.0 – when the economy and labor markets were doing great – ’rates were higher’ than today.  Hey, just look at a chart of Fannie Mae rates or 10-year UST, right?  Yes, they are right, technically; “rates were higher” then, than now.  And house prices went through the roof.  That’s the correlation everybody is sticking too…strong economy + higher rates = higher house prices.   But, this would be incorrect.

In reality, on Main Street – to tens of millions of homeowners – from 2003 to 07 mortgages were much cheaper on a monthly payment basis than ever before in history and ever have been since.  This statement is true, even when factoring in the much higher nominal house prices back then, and the recent Fed-induced sub-3.5% that lasted from 2011 through May 2013.  This was because the incremental – in fact, the “primary” in many regions around the nation — buyer, refinancer, and HELOC user used “other than” 30-year fixed rate money.

In contrast to the revisionist history being peddled today, the 2003-2007 era was all about introducing extreme leverage-in-finance — incrementally increasing each year — through exotic lending.  This made it so people could keep buying more expensive houses and refinancing at higher loan amounts on income that didn’t support it. 

The advent and increasingly exotic nature of mortgage loans from 2003 to 2007 enabled the greatest “greater fool” trade of all time.  Despite “rates being higher” from 2003 to 2007, everybody always earned the amount necessary to qualify for a loan;  it turned virtually every homeowner in America into a Real Estate speculator driving the market with reckless abandon.   Then, in 2008, when all the high-leverage loans went away at the same time, housing “reset” to what the fundamental, “organic” demand cohort could really “afford” using 30-year fixed rate, fully-amortizing financing and when made to prove their income and assets.

Today, those looking at 2006 house prices as a benchmark for where house prices are headed — or assuming house prices are ‘safe’ or not back in a ‘bubble’ because they haven’t regained those prices – are looking at the wrong thing.  That’s because house prices never can get back there unless employment surges and incomes rise double-digit percentage points with a respectable number in front.  Or, unless all the exotic, high-leverage, no documentation loans come back.

In other words, for house prices to get back where they once were, something has to be introduced that brings back the leverage-in-finance lost when exotic loans went away and everybody suddenly went from earning $20k a month to their real incomes when qualify for a mortgage loan.

Certainly, if we are staring a multi-year economic recovery in the face that brings higher rates, the accompanying job and income growth over the next several years won’t hold a candle to the historical “affordability” from 2003 to 2007 using a “Pay Option ARM” or “stated income” loan.


2)   2003-2007 vs 2011-2013…a stark comparison 

There is little difference between between 2003 – 2007, when housing went through “Ma and Pa America speculation-fever” and 2011 – 2013, when private and institutional “investors” caught speculation-fever.  Of course, other than the actors being different;  the primary monetary policy recipient and speculator cohort changed from Ma and Pa shelter speculator to Dick & Son’s Property Flippers and Blackstone.

This is obvious through a dozen different datasets, and especially in the sales volume divergence between ”new” and “resale” houses.  Even ”resale” volume on an absolute basis highlights the lack of true “organic” demand when normalized for “distressed” and investors reselling flips and rentals, which can look like “organic” sales to most everybody when using surface level data.


The stimulus-induced housing market pumps and subsequent “reset” periods 2003-2013:

a)  Housing didn’t peak in 2006.  Rather, they peaked with respect to “affordability” in 2002.  That’s when the average house became “unaffordable” to the average household on a monthly payment basis using a 30-year fixed mortgage. To makes matters worse, rates surged in 2003

b)  Viola’!  Enter, high-leverage, exotic loans in 2003. Exotic loans removed the “fundamentals” and mortgage loan guidelines “governor” on house prices. 

c)  Using high-leverage, exotic loans from 2003-07 Ma and Pa America were able to circumvent the fundamental laws of supply, demand, and affordability and became speculators.  Suddenly, everybody in America got a substantial pay raise through the new found leverage-in-finance;  they earned enough money per month to buy whatever house they wanted using interest only, Pay Option ARMs, HELOC’s, or SISA’s and NINJA’s.

 Bottom Line on 2003 – 07:  ”Bubble 1.0″ – the 2003 to 2007 parabolic period – was mostly due to exotic loan leverage-in-finance (easy credit) being introduced, which — because house prices follow the most readily available mortgage financing terms and guidelines – drove the incremental and primary buyer / refinancer speculator demand cohort, Ma and PA America.  In fact, in 2005-06 in CA 70% of all loans were “other than” 30-year fixed rates loans.

d)  Then in 2008 the housing market “reset” — when all the exotic, high-leverage loans went away at the same time — to fundamentals (what somebody could buy or qualify for using a 30-year fixed rate mortgage and guidelines looking at real employment, income, assets, DTI, appraisal etc.)

e)  Viola’!  Enter, the 2009-10 “Homebuyer Tax-Credit, $8k nationally and $18k in CA.  In 38 states the credit could be monetized for the purposes of an FHA downpayment making it the first, best, and last chance hundreds of thousands of “first-time” buyers had to buy a house.  In fact, first-time buyer volume has never been as high since.  During the tax credit period there were ”lines of buyers around the corner”, “multiple-offers”, and the Case-Shiller index went “vertical”. Everybody was convinced housing was in a “durable” recovery with “escape velocity”.  Huge bets were made by well-known investors on ’this’ recovery.

f)  Then in 2010 the housing market “reset” — on the sunset of the Tax-Credit — to fundamentals (what somebody could buy or qualify for without the free downpayment, using a 30-year fixed rate mortgage and guidelines looking at real employment, income, assets, DTI, appraisal etc.).   Housing went into a technical “double-dip” in 2011.

g)  Viola’!  Enter, the summer of 2011 “Operation Twist” speculation that drove down mortgage rates and UST to historically low levels. Cheap cash starving for yield on the back of years of ZIRP and on QE was mobilized.  Just like Ma and Pa did in item b) and c) above, “all-cash” buyers, using flawed cap-rate models as a guide, removed the “fundamentals” and mortgage loan guidelines “governor” on house prices.

Bottom Line on 2011 – 13:  ”Bubble 2.0″ – the 2011 to May 2013 parabolic period – was mostly due to easy and cheap capital in search for yield turning private and institutional investors into the incremental buyer / speculator demand cohort.  Like Ma and Pa from 2003 to 2007 (items b) and c)) above, they have been able to circumvent the fundamental laws of supply, demand, and affordability but through “all-cash” using flawed cap-rate models as a guide.  The parallels are many.  For example, in Bubble 1.0 hot spots, over half of all mortgage loans were “exotic” in nature.  In Bubble 2.0 hot spots, over half of the buyers paid in cash.


 3)  Housing responds well to “stimulus”;  contracts when stimulus is removed.  The next “Reset”

The point of items a - g  above is clear;  housing responds well to “stimulus” and “resets” when the stimulus dries up.

From 2011-13 the “stimulus” was most utilized – not by end-users like from 2003 to 2007 and again from 2009-10 – but by ‘yield starved” investors.   Which is exactly the “catalyst” for the next “reset”.  That is, a move from “distressed”, which has ruled the market for years, back to an “organic”, or a “fundamental” based housing market  – as the private and institutional investors leave – in which people use mortgage loans to buy will once again be “governed” by 30-year fixed rate mortgages, fundamentals, guidelines looking at real employment, income, assets, DTI, appraisal etc.

And as in 2008, and again in 2010, when the “governor” is put back on, prices will ”reset”.   Right now, under house prices, there is an air-pocket equal to half the past 2 year gains.


4)  My Favorite Datasets…Bubble 2.0 in Pictures

These following data show how “cheap” houses really were from 2003 to 2007 (affordability high) relative to today, for those using a mortgage loan to buy relative to today.


a)  California Mega-Bubble 2.0

House prices are down 26% from peak 2006.   But it costs 12% MORE on a monthly payment basis to buy today’s house.   Say what!?!?

Or, put another way if house prices were the same as 2006 today, using today’s 4.625% 30 year fixed rate mortgage it would cost 34% more per month to buy;  one would have to earn 48% more to qualify.  Astounding!

That’s because back then the primary buyer/refinancer/price pusher used “other than” fixed rate loans.  In fact, in 2005 to 2007 over 60% of all mortgages were “other than” 30-year fixed-rate fully documented loans.

Masking the “unaffordability” of today’s housing market is “all-cash” buyers who are not “governed” by end-user fundamentals (what somebody could buy or qualify for using a 30-year fixed rate mortgage and guidelines looking at real employment, income, assets, DTI, appraisal etc.)

Bottom line:  as investors slow or shut down the buying and the market turns more “organic” — or normal — in nature, significant price pressure will present again.

CA REAL AFFORD 2003 -06 -13

b)  The Smoking Gun

 The red line in the chart represents the mortgage payment needed for the median priced CA house (black bar) from 2000 to 2013.  This chart assumes that from 2003 to 2007 the primary purchase/refi/price pusher cohort used the popular loan programs of the time, “other than” 30-year fixed-rate fully-documented loans.

Bottom line:  Houses first became “unaffordable” in 2002.  Then, exotic loans were introduced in 2003 allowing people to keep buying more house without income following suit.  When the exotic loans all went away at the same time in 2008 house prices “reset” to the real “affordability” using a 30-year fixed rate mortgages requiring proof of income and assets.  The market ticked higher slightly in 2010 on the Homebuyer Tax-Credit then “double-dipped” as the stimulus was removed.  Of course, the third major stimulus aimed at housing in the last 10 years came in Q4 2011, exactly when housing caught it’s most recent bid.  The past two-year move was so fast and large that the subsequent “reset” should be ‘another’ one for the record books.

CA Med Price and Payment using popular loan progs - Bar vs Lone chart


c)  The Smoking Gun 2

Like the chart above, this shows the typical monthly payment for the median CA house from 2001 to 2013.

Bottom line:  Houses have NEVER BEEN MORE EXPENSIVE” on a monthly payment basis than right now.

CA Mo Payment to buy median priced house 2000-13 - loan progs shown1


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Thu, 12/19/2013 - 17:01 | Link to Comment FieldingMellish
FieldingMellish's picture

I love you Mark but these are peoples homes, not an "asset class" to be played with by Wall Street.

Thu, 12/19/2013 - 17:03 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture



A legacy of market stability...

Thu, 12/19/2013 - 17:04 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

Quick!  Build an addition on the right side!

Thu, 12/19/2013 - 17:18 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture



Quick!  Replace that guy with an identical female and hope for a different result!

Thu, 12/19/2013 - 18:16 | Link to Comment hidingfromhelis
hidingfromhelis's picture

Quick!  Replace that guy with an identical female and hope for the same result.  ~~Signed,  Your friendly TBTF

Thu, 12/19/2013 - 17:57 | Link to Comment Winston Churchill
Winston Churchill's picture

On the right is  a sinkhole !

Thu, 12/19/2013 - 22:23 | Link to Comment Seer
Seer's picture

Build it (the pie) HIGHER! (remember: in order for things to start looking up you must first start looking UP!)

Thu, 12/19/2013 - 23:23 | Link to Comment Lost My Shorts
Lost My Shorts's picture

Even better, carve that place up into 600 sf condos, and sell them for $199K each to investors or hipsters who just got their first job and borrowed the 3% down payment from mom because it's cheaper than renting, and retire to Bermuda.

Despite all these wiseguys talking about bubble 2.0, prices are not coming down.  They are still up 40% from the butt end of 2011.  I know; I am looking.

Thu, 12/19/2013 - 19:38 | Link to Comment michael_engineer
michael_engineer's picture

That house reminds me of a the definition of a boat :  A hole in the water that you pour money into.

New definition for Quantitative Easing : A hole in the whatever you pour money into.  

P.S.  Buy my app which is a virtual hole in your iPad you can pour two dollars into.

Thu, 12/19/2013 - 23:31 | Link to Comment Frozen IcQb
Frozen IcQb's picture

BOAT: Bring On Another Trillion

Thu, 12/19/2013 - 23:48 | Link to Comment michael_engineer
michael_engineer's picture

BOAT : Bail Out Another TBTF

Thu, 12/19/2013 - 19:47 | Link to Comment michael_engineer
michael_engineer's picture

I've got a basic question maybe someone here can answer.  When the Fed or some other Fund purchases MBS, does the money for the purchase somehow get reflected into other home related figures and charts?  Does the money add onto the average price paid for a house?  Does it get reported as a "sale" of a home anywhere?  I'm just curious how the bookkeeping is done on that kind of thing.

Thu, 12/19/2013 - 22:25 | Link to Comment Seer
Seer's picture

"I'm just curious how the bookkeeping is done on that kind of thing."

Which set of books? (and, really, like TPTB would ever disclose the REAL books?)

Fri, 12/20/2013 - 01:16 | Link to Comment Moon Pie
Moon Pie's picture

Wrong.  They are the same frikin actors.  You can't make this stuff up:

Michael Nierenberg, CEO of New Residential ("NRZ")(sub of Newcastle) and his "gang" have announced the "purchase" of certain Mortgage Servicing Rights ("MSR's") and certain "advance funding obligations" ("AF's") from Nationstar Mortgage. The AF "debt" purchase is for $3.2 Billion and the MSR's represent $58 Billion in terms of mortgage obligations.  

This deal was done not even after the ink was dry from the Nationstar/Bank of America deal, which essentially washed BAC's hands of mortgage servicing and got them unstuck from the "49 state" Settlement orchestrated wonderfully by the OCC.  It's a classic hide the Salami, Whack-A-Mole all balled up in one.

But there's more...

Nierenberg was a (arguably controlling) board Member of Bear Stearns up until it completely shit the bed in 2008.  His *specialty* there was....wait for it......securitized mortgage loan products!

So, here you have ther fuquer who did the shitty deals, arguably blew up the non-agency biz and was not a minor factor in sinking the entire economy of the world.....who now for pennies on the dollar is buying the frikin Servicing debt from the other fuquers and stands to reap yet ANOTHER ridiculous windfall.  This shit is just too unreal to believe.  I commend the links to the deals below to you all. 

I am agog.  And I've seen a lot.  There is no end to it.




Fri, 12/20/2013 - 01:51 | Link to Comment putaipan
putaipan's picture

....calling henry george.

Fri, 12/20/2013 - 01:56 | Link to Comment putaipan
putaipan's picture

and another perspective .... (includes-securitized low income rents! that's gonna work out well)...


Fri, 12/20/2013 - 10:49 | Link to Comment putaipan
putaipan's picture

and micheal hudson's perspective- cool yearend round up -

Thu, 12/19/2013 - 17:04 | Link to Comment IridiumRebel
IridiumRebel's picture

We said fuck it and rented our place out. I'm done fighting upstream. I save that for my PMs worth. See y'all at gold 1000! Why would we want to own tangible shit?
....and it's gone!

Thu, 12/19/2013 - 17:02 | Link to Comment max2205
max2205's picture

California is in a different universe...and pay scale

Thu, 12/19/2013 - 22:27 | Link to Comment IPA
IPA's picture

Them new tities don't pay for themselves, depending on who you ask. 

Thu, 12/19/2013 - 17:04 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

Ignore error, bitchez!  (a little excel humor for that first arial-addled chart)


Thu, 12/19/2013 - 17:10 | Link to Comment corporatewhore
corporatewhore's picture

after trashing 500 years of real estate law and abrogating it to MERS (no, not middle east respiratory syndrome), does anyone even know who owns what?  almost all of the judges get a deer in the lights look in foreclosures and default to the banks rather than asking the hard questions.

when this debacle is over maybe --just maybe--real estate might be reasonable again.  But then again, can you get a warranty deed or is it still a quitclaim deed--NOT THAT IT MATTERS anymore.

Thu, 12/19/2013 - 18:29 | Link to Comment MachoMan
MachoMan's picture

The law hasn't been trashed...  it's just that the courts haven't heard all there is to hear in the mortgage nonsense... [aside from the fact that MERS has been trashed in very many jurisdictions already and is now defunct].

Further, it's not a judge's place to ask the questions, rather it's the homeowner/debtor's responsibility to ask the questions given our adversarial legal system.  If the homeowner defaults on the lawsuit, then yes...  the Court is going to shit on him.  However, if the homeowner asserts that the plaintiff doesn't have standing to foreclose and requests the foreclosing party to connect the dots for the entire chain of assignment (and asks for some of the securitization documents), then what happens often times?  The plaintiff either drops suit or quits pursuing it, letting it eventually die on the vine.  [hint: how is it that we have a nation of folks living in their houses without paying the monthly note?]

In addition, virtually all the deeds in question are warranty deeds...  which are still being issued...  there is no question as to who owns the properties...  the only question is who has a lien on the properties.  I don't know of a single case of a homeowner being forced to pay for a home loan twice nor of a situation where a downstream creditor asserted (after the sale of a home) that a predecessor failed to pay them off or otherwise properly account for their unrecorded lien or was otherwise dragged into court to defend title from a subsequent purchaser over issues with MERS or securitization of the loan.

Thu, 12/19/2013 - 23:08 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture


Thu, 12/19/2013 - 17:08 | Link to Comment DOGGONE
DOGGONE's picture

Real Homes, Real Dow
VERY instructive, SO rarely seen!

Thu, 12/19/2013 - 17:09 | Link to Comment sixsigma cygnus...
sixsigma cygnusatratus's picture

I'm still trying to figure out if "Surprise Crash V 2.0" and the ensuing Bailout and Super QE V 2.0 will include a Cypress-style haircut.

Thu, 12/19/2013 - 17:13 | Link to Comment Jack Burton
Jack Burton's picture

Oddly enough, the place where a mega housing bubble has taken hold is Sweden. In order to meet the bubble prices, ordinary Swedes are setting records in taking on debt. The average Swede is now a world class debt slave, and most all this debt is down to the house price inflation. You must take on a mega mortgage to buy just about anything. Tiny flats in Stockholm and Göteborg are sky high. Stockholm is simply off the charts. This can not go on forever, I am not yet sure what will trigger the collapse, but it seems that it must collapse.

Britain's governmet is paying people to buy homes. You just can't make this stuff up. The more unaffordable is British home, the greater economic boost it is for the economy, according to the Bank of England.

Why did housing world wide become bubble blowers dreams? I assume it has to do with the financialized economy and the run away power of big banks, backed by central bank policies. Housing ceased to be a place to live, subject to people's incomes and debt servicing abilities within reason. The bankers and the street have stepped in to fuel speculation with oceans of cheap money, this gave bankers and the street new and growing income streams, they thus put their foot to the floor in feeding the frenzy. It made no sense to me by 2004 what was happening to existing home prices.

Thu, 12/19/2013 - 17:54 | Link to Comment EuropeanBankster
EuropeanBankster's picture

I live in Sweden. True, a 2 room appt. In central Stockholm cost 400K usd, and then the building also has a shared mortgage of about 100K/ appt on average.. all appartment bldg share some financing and share water, heat etc. You pay monthly based on the size of the appt. So here is how it goes: you borrow 350K in the bank @ 2,5% with a downpayment of 50k.normally only interest is paid. An average person in stockholm has a disposable income of 4000 usd/month. The monthly calculation: net interest 650 usd, shared costs 500 usd. Electricity and other costs about 200 usd. Total monthly cost is about 1500 usd. 2500 left to live for... 

But shit hits the fan when the interest rate normalizes to 5-6 %.. then you will se a housing crash of biblical proportions.. we are gratefull that the bernank sees to that global interest rate levels are manipulated down to about 0!


Fri, 12/20/2013 - 00:45 | Link to Comment DaveyJones
DaveyJones's picture


and then there's your winter

no wonder the booze is strong

Thu, 12/19/2013 - 18:05 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

"Housing ceased to be a place to live, subject to people's incomes and debt servicing abilities within reason."

Correct.  Housing has turned from a "reasonable" wealth extraction scheme to a "fucking gonzo" wealth extraction scheme.  The REO to rent scheme has pretty much peaked out at this point, but holy shit was that an epic wealth transfer from the plebs to the controllers.  Between this shit and the student loan scheme, we're at epidemic levels of debt slavery on a basis relative to the value of our productive labor.  

Thu, 12/19/2013 - 18:19 | Link to Comment PrecipiceWatching
PrecipiceWatching's picture


We have been told repeatedly by the Statists that Scandanavia is a living example of where Socialism "works".


Thu, 12/19/2013 - 17:16 | Link to Comment swmnguy
swmnguy's picture

On a strictly anecdotal, amateur basis I'm seeing this play out in my part of Minneapolis.  My wife and I bought a tiny house for $49.5k in 1996, which was the same price the previous owner had paid in 1976.  We sold it in 2009 for $139k.  We turned around and bought a house for $226k which probably would have sold for about $125k in 1996.  So in a sense we completely missed the whole bubble; the bubble money we got when we sold, we used to pay down the bubble price of the new house, so we're paying now on the same sized mortgage we'd have paid then, more or less.  We're lucky.

The house 2 doors down from us was trashed by squatters, but somebody bought it from the bank for $85k and gutted it down to the studs and refurbed it pretty nicely.  It has one less bedroom and about 800 sq. ft. less than our house, but a couple with good jobs and a few kids bought it for $275k last spring.  The house 2 doors the other direction sat on the market for 18 months after the owner relocated.  He wanted $250k for it.  It's nicer than our house, but at least 1000 sq. ft. smaller.  He took it off the market and then put it right back up and it sold in September for $280k; again to a nice couple with kids and good jobs.

A little creepy-neighbor Google action shows that both these couples did the same thing we did.  They had owned little starter houses they had bought before the bubble, owned most or all of, and then sold at bubble pricing and used that money to buy the next, bubble-priced, house.

The only part I care about is the monthly payment when all is said and done.  We're still right about at $1000, which is what we figured we could afford in a bad year and way less than we could rent a suitable house for.  The new neighbors can't be at that low of a payment, but probably not above $2000 if they put as much down as it seems they could have.

But these aren't starter homes.  We sold our starter home for $139k.  We wouldn't have been able to get a loan for that at the time we bought that house.  Incomes haven't risen accordingly.  If young families can't buy starter homes, they aren't going to be spending double that amount on move-up homes in 15 years.  It's not sustainable, in the way of bubbles.

Thu, 12/19/2013 - 20:05 | Link to Comment Calmyourself
Calmyourself's picture

Well that 1,000 will seem a bit steep when Dayton and MNsure get done with us..

Thu, 12/19/2013 - 21:58 | Link to Comment swmnguy
swmnguy's picture

An ebbing tide lowers all boats.  I wouldn't want to be my new neighbors when SHTF.

Thu, 12/19/2013 - 17:24 | Link to Comment honestann
honestann's picture

Yup.  Combine this analysis with the two charts in ZH just a day or two ago, and we have "collapse city" all over again.  BTW, those charts showed home-building rising like crazy, while applications for mortgages hit a low since about 2002 (matching the depth of the housing collapse in about 2008).

Anyone betting on real-estate now is... CRAZY.

And the author didn't even mention one more huge factor in this issue.  Unless most people "just say no" to Obamacare, the amount of available money for mortgages or "just plain spending" will absolutely collapse in 2014.

Look out below!

Thu, 12/19/2013 - 17:37 | Link to Comment corporatewhore
corporatewhore's picture


Thu, 12/19/2013 - 18:55 | Link to Comment MachoMan
MachoMan's picture

I'd be curious to know the amount of strategic default in the system...  I suspect the average price paid per month is probably lower than expected due to plenty of folks who've figured out they can stay there free (well, pay taxes and POA fees).  But I think people will be saying "no" to obamacare...  especially young folks.  When I quit my job in the near future, I'll be without insurance...  I'm young, so it will only be ~$300/mo. for a $500 deductible gold plan, but I still might not even pay it.  I go to a GP maybe every 3 years for some bullshit ailment or injury...  If you have car insurance that covers you for injury, then the other possible causes pale in comparison.

But seriously, I suspect many will have no choice but to refuse insurance...  why would I buy insurance when I have a $6000 deductible and I'll rack up maybe $3k if I have a moderate injury/illness and a few minor during the year?  If I'm going to have to pay it out of pocket anyway, then I'll just keep the insurance premiums.  Which is why only the folks who spend a shit ton every year on insurance are signing up...  If I have no net worth, then what the fuck do I care if I have to file medical bankruptcy after receiving life saving treatment?

Healthy people will likely opt out of obamacare, the worst of the worst (or the risk averse) will sign up, the penalties for not having insurance will be difficult to collect, and the medical industry will gnash its teeth as it has collection issues (or lack of demand issues) for those who it does see due to high deductibles/no insurance...

Thu, 12/19/2013 - 22:04 | Link to Comment swmnguy
swmnguy's picture

I agree with your take on health insurance but I don't see how anything has changed.  The situation you sum up is what I've been running through my head for the past 25 years or so.  I have kids now so I do buy health insurance ($5,000 individual, 10,000 family deductible, $415/mo. premium for myself and the two kids as my wife's employer provides generous employee benefit but ungodly expensive family coverage).

All the things wrong with ObamaCare have been wrong with health insurance for a long, long time.  That's maybe the worst thing about ObamaCare, actually.

Thu, 12/19/2013 - 23:09 | Link to Comment new game
new game's picture

mn gota luv it here - lol

witch tity cold mofo.

sold for 20 yrs b/4 hanging it up.

recent sales of mn owned props and renting mo to mo


watching with intense interest as to next move.

all indicators say soft market ahead, price leveling and falling? cashto be king as financing cost rise.

see if the cash/investor buyer abates. near end of last fool flip imo.

article is exactly spot fucking on from my boots on the ground home hunting(hobby farm in cent mn), coming up second position many times or day late...

give this article a 9.5 of 10 from my 20 plus years as sales/broker

debt free and soon to be home paid for and debt free (still) and mostly off the grid...

you will know as posting will cease...


Fri, 12/20/2013 - 00:54 | Link to Comment DaveyJones
DaveyJones's picture

correct, "obamacare" is a bit of a misnomer and the basic corruption has been with us for some time. It is now, like every other criminal scheme, amplified. The main criminal design comes from the herritage foundation (something the elephants AND donkeys want you to forget) and is one of many fascist (as Hedgless points out)  schemes - this one benefiting, and only benefiting, insurance and drug gaints.

Fri, 12/20/2013 - 11:39 | Link to Comment MachoMan
MachoMan's picture

Right, but the game changer with obamacare is that there stands to be a material amount of non-insured on the margins...  meaning, the journey towards the summit of price discovery is getting closer to an end.  With medicare and medicaid forcing more cramdowns (and, thus, doctors jumping from the ranks), the ability of medical institutions to be decadent with administrators and its general practices are coming to the end of an era.  As self pay dominates the landscape, those institutions with high fixed costs will sink unless bailed out.  We're moving away from the insurance model of today (and recent history)...  albeit slowly.

If you want medical costs to come down, then end the insurance and government gravy train.  If you want doctors to quit performing unnecessary procedures, then force the patients to pay for the procedures...  I can assure you, there will not be any unnecessary procedures, rather the risk will be that everyone goes undiagnosed...  When the patient tells the doctor to fuck off on a procedure, do you think a jury is really going to break it off in the doctor's ass when the patient kicks the bucket or suffers additional harm (not that they typically do on this type of thing anyway, but I digress)? Especially when the medical institution requires the patient to sign a document that he's been advised to undergo additional testing and has refused...  [they're already doing this a lot...  even when you pay for services].

The corruption is in the process of how healthcare is procured...  if the person (turnip) receiving it actually has to foot the bill (no chance of collection), then every transaction will be scrutinized and, further, all will talk of the prices at the local diner...  In addition, knowing the world is now filled with turnips, medical professionals will undertake better analysis of ability to pay before providing services...  around and around we go and where the price ends no one knows...  (but we know it's less than what we're paying now).

Fri, 12/20/2013 - 03:52 | Link to Comment kareninca
kareninca's picture

honestann, you mentioned in passing in an earlier post today, that the U.S. government is now agreeing to let the Chinese know of cash purchases of U.S. houses by Chinese nationals.  do you have any links or hints for tracking this down?  It would be kind of hilarious if it is true.  I thought it would happen at some point; if it is happening now that is far sooner than I expected.  It would make the California market . . . interesting.

Fri, 12/20/2013 - 22:25 | Link to Comment honestann
honestann's picture

Sorry, I didn't copy that link.  But I read this in ZH about... oh... probably about two weeks ago (very roughly).  Unfortunately, I can't recall whether this was the main topic of the article, or just one paragraph, so you may (or may not) have to search through quite a few articles to find it.

Since that article a couple Chinese responded to me saying that a fair percentage of rich folks in China can probably find Chinese who live in the USSA and are now USSA citizens to officially buy the property for them, and thereby avoid this reporting.  So the impact may not be quite as huge as otherwise.  But also there is still plenty of overprices property in Canada to buy.

Thu, 12/19/2013 - 17:29 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture


one more time

Fuck bubble talk.  When you're in an Apocalypse, you shouldn't think about bubbles.

How do you bubble 6 years to get to 1960s levels with 50 million more people. 

This is not a dip.  This is not a bubble. 


The F word.  Forever.  It's never ever going back to normalcy, and it's not a new normal. 

It's relentless, perpetual decline to oblivion.  Enjoy the ride.


Thu, 12/19/2013 - 18:24 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture


An even funnier (gallows humor) chart is to multiply the existing home sales by the median existing home sales prices.  Gives you a better idea of the scale to which the housing market was/is/will forever be fucked.

Another chart to look at is to index scale the Adjusted Monetary Base and existing home sales.  The fact that we are now beginning to dip on those sales, even with that monetary base going near vertical, says everything.


Thu, 12/19/2013 - 22:34 | Link to Comment Seer
Seer's picture

Your posts always make me feel better: I suspect that that's not the case with very many people.

I switched from a "house" (investment) to a "home" (with land).

Thu, 12/19/2013 - 22:59 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Good job.

Now start thinking about a water supply.  If it's good enough, you can drop a little micro hydro plant in it.

Thu, 12/19/2013 - 17:30 | Link to Comment cocoanut
cocoanut's picture

Get a copy-editor, your spelings are atrocious

Fri, 12/20/2013 - 10:07 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture


Thu, 12/19/2013 - 17:33 | Link to Comment NOZZLE
NOZZLE's picture

One of my typical bankruptcy clients in 09, polac trucker buys two 500k homes one as a residence one for speculation,  two mortgages on each, diesel fuel prices double,  income crashes,  housing prices crumble,  rinse repeat. 

Thu, 12/19/2013 - 17:55 | Link to Comment honestann
honestann's picture

Now for the flip side of this story.

!!!!!  KEEP YOUR POWDER DRY  !!!!!

The world full of impatient sheeple are being turned into debt slaves.  Probably 95% of all humans are too stupid and/or short term oriented to respond intelligently to the state of reality today.  What state is that?

Virtually EVERYTHING is grossly overpriced.


Because credit is too easy to get.  Which is not a surprising event on a planet that is now completely dominated by fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-laden toilet paper.  The predators-that-be don't need to have money, and don't even need to have savers to lend the funds of.  No,  They just create fake money out of thin air... when they lend to someone.

And so they do!  Why not?

The result?

People don't buy what they need.
People don't buy what they can afford.
People don't buy what is rational to buy.

People just buy whatever they want, regardless of need, regardless of affordability, regardless of any rational thought process --- just because they want it, and can get it.

And why can they "get it"?

Because the predators-that-be will lend to them, without regard to anything.

But wait!  It is even much worse than this!!!

Want new furniture for your home?  No problem, just take it home with you, and start making payments in 3 months.  No need to put it on your (already full) credit card.  No need to take a bank loan.  No need to hit the federal reserve.  No need for an actual loan at all --- just pay for it over the next year.

So what do almost all humans do?  They buy.  And buy.  And buy, buy, buy, buy, buy, buy, buy, buy, buy, buy, buy, buy, buy, buy.

After a while, this form of insanity seems completely normal.  After all, everyone else is doing it.  Well, except a percent or two of the population who we can laugh at, because they don't have 2 new SUVs, full-wall TVs in every room, and all the other goodies we love.  What morons, right?

And besides!  What is the example from the US (and other) governments?  Answer.  Borrow and spend.  Borrow and spend.  Borrow and spend.  And borrow even more every year to make payments on previous loans AND spend, spend, spend, spend, spend.

And with 95% of the western world spending 2x, 3x, 5x what they earn... how does this impact prices of goods?

ROCKETS PRICES HIGHER... just as huge demand always does.

Which is one very significant reason people get so deep in debt... because their willingness in mass to get into deep debt rockets prices higher.

Just one example.  People today pay 8x (6x to 12x) more for a house than the house is worth.  About 3x for cars.  Ditto for fuel.  Ditto for utilities... and so forth.

Smart people have another way to talk about this phenomenon.  They point out another valid way to describe this is "pulling demand forward".  Which is correct.  This simply means, people today pretty much "buy everything today" (on debt in some form)... then have to spend the rest of their lives NOT buying anything but necessities in order to pay off their debts.  They are, in fact, and indeed, very much "debt slaves".

So, what will happen.

This should be obvious.  Almost the entire "western" world (including Japan) are so deep in debt that they will not be able to buy, buy, buy, buy, buy much longer.  They are now debt slaves, and will have to work the rest of their lives to pay off all the old, rotten, obsolete garbage that fills their 2 car garage to the ceiling.

Very soon we can say "demand was pulled forward" for most people (past tense).  At which point, most people stop buying.

Which another group of people (the "deflationists") say "has to cause deflation".

While another group of people (the "inflationists") say will cause massive inflation because the tried and true way for predators-that-be to deal with excessive debt is... print, print, print, print, print.

Of course, they are both right, but also both missing part of the point.

We don't know which aspect of this situation will "go nuts" first.  It very well could be that deflation will kick in first, and supply the excuse for the hyper-insane money printers to go even hyper-insaner.  That does appear to be a very common way for hyper-debt to play out.  But... printing could also go out of control first.

But even if so, the deflationists are correct anyway.  The demand for goods by an entire planet of debt-slaves does restrain demand.  Which does drop prices.

And even if the money printers cause more inflation than lack of demand causes deflation, the price of goods in real terms will fall.

Which is where we look back at the 1%, 2%, 3%, 5% of the population who has held strong for decades, not allowed themselves to get weak and "give in" to the endless pressures that suck others in, and instead stay frugal, refuse to buy overpriced goods, and accumulate their wealth in real, physical goods (to protect themselves from losses due to the 10% per year real inflation that exists).

In a year or five, their time will come.  The cost of goods in terms of the gold or silver they hold their savings in will drop, drop, drop... very, very substantially.

And then it will be their turn.

I can't wait!

Can you?

Thu, 12/19/2013 - 18:14 | Link to Comment DOGGONE
DOGGONE's picture

Terrific comment! I try to get heads out into the light with
The Public Be Suckered

I also tried:
Fellow citizens, your collective brainwashability is repulsive.

IF ONLY the news media were NOT bought ...

Thu, 12/19/2013 - 18:30 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

A good example of this:  stocks have crashed 40% since the March 2009 lows when priced via the monetary base.  Very strong deflation in real terms, very strong inflation in nominal terms.  

Thu, 12/19/2013 - 22:09 | Link to Comment swmnguy
swmnguy's picture

I needed a clothes washer and dryer after the one went tits-up and the other was a POS to begin with.  I did a little research and went to my local appliance dealer.  They were having some kind of SALES EVENT!!!1!! with delayed payments and the whole nine yards.  I wrote them a check for the full amount, including the delivery, install, gas permit and removal of the old junk.  Because I waited until I had the money to go buy the machines.  They thought I was nuts, because I could get $0 down, no payments for 3 months, and a low, low rate after that!

Hell, maybe I am nuts.  The new laundry machines are awfully nice, and nobody is going to come take them back.

Thu, 12/19/2013 - 22:18 | Link to Comment yogy999
yogy999's picture

Spectacular!! Nice job.

Thu, 12/19/2013 - 23:02 | Link to Comment starman
starman's picture

Exactly, but look closely deflation already has begun in many consumer goods!

Fri, 12/20/2013 - 02:51 | Link to Comment A Dollar Short
A Dollar Short's picture


Thu, 12/19/2013 - 19:07 | Link to Comment runthenumbers
runthenumbers's picture

Look at his table above and ponder it for a second.  Right now all you need to buy a 357K house is 69k in annual income.  So the government will guarantee your mortgage for 7 times your income.  Talk about a disaster waiting to happen.  Run a budget for a family of 3 or 4 on 69K and then tell me how they can afford a 357K house even with rates at 4%.  It just makes no sense.  After taxes and necessities you have nothing left.

Thu, 12/19/2013 - 19:43 | Link to Comment besnook
besnook's picture

69000 divided by twelve equals 5750. 5750 times 30% equals 1725. 1725 equals a 357000 house.

nothing wrong with that equation unless your taxes are outrageous.

Thu, 12/19/2013 - 20:59 | Link to Comment pursueliberty
pursueliberty's picture

That is gross household income.  While your numbers do make sense, that would but you at a $57k net maybe a little more with a pair of kids.  That is 4750.

The big assumption here is that the household here, with a 69k income, manage to save the $80k down payment to finance only 80%.


No one is doing a conventional 30 with 20% down here.  I mean less than 10% of all in my area put down 20%.  Add in PMI of 1.25% or greater and affordability collapses.  I've seen what I consider high income household ($120K+) that can barely come up with the 5%.

Thu, 12/19/2013 - 21:07 | Link to Comment bigluck
bigluck's picture

Agreed.  It is rare that you find someone willing to put 20% down.  I am in the business and most of my purchase clients put 10% or less down.  That being case, assuming good credit, this would go conventional and with the monthly PMI, taxes and insurance the payment would be much closer to 2500/mo.  Obviously that is on top of the 35k they would need to put down (in addition to closing costs).

Thu, 12/19/2013 - 22:36 | Link to Comment runthenumbers
runthenumbers's picture

Seriously, run a budget.  That $5750 goes fast.  I have a great spreadsheet that will show you.  It adds in all common expenses and taxes and shows that if you buy that house with that income level you are a foreclosure waiting to happen.  You will never be able to save money to pay for unforseen household expenses, much less take a weekend vacation.

I believe this is what is keeping this housing market from crashing.  People as always are buying as much house as the bank/government will loan them.  This will be a slow motion crash, as people lose jobs and/or are unable to maintain the houses.  It is simple math, and somethign our government has shown it cares nothing about.

Fri, 12/20/2013 - 03:14 | Link to Comment Blankenstein
Blankenstein's picture

I have a personal finance book by the WallStreet Journal written in 1990.  It advises to pay no more than 2.5 times your income for a house.  Just think how financially healthy the citizens would be if everyone had stuck to this formula.  You would even be able to save a good portion of your income for retirement, etc.  Of course you wouldn't be enriching the elite bankers, mortgage brokers and realtors with this common sense approach.    


Even with the less conservative but advisable 3 times income rule of thumb, one should be earning $120,000 to reasonably afford a $357,000 home. The idea of paying this mush with a $69,000 income is insane, and will make the poor guy who falls for this tripe a life long debt slave.

Fri, 12/20/2013 - 15:25 | Link to Comment besnook
besnook's picture

that is why i ran the numbers at 30%. everyone's miscalculations are based upon the notion that 69 grand is good money and a 357 grand house is some house. niether is true. 69 grand is peanuts and a 357 grand house is an aggrandized raised ranch of the 70s that sold for 15 grand. so, no, you are not supposed to have any money left over after expenses at the raised ranch level unless you want to move down to the 250 grand level which is now close to the ghetto.

Fri, 12/20/2013 - 22:04 | Link to Comment Blankenstein
Blankenstein's picture

What type of house it is and the condition has nothing to do with whether or not you can afford the price.  This sounds like realtorspeak.  

Thu, 12/19/2013 - 19:51 | Link to Comment besnook
besnook's picture

there is no real estate bubble remotely like 2008. builders may get hurt but there will be no financial bubble pop this time precisely because most of the buyers are cash buyers, because another mortgage financing squeeze will just ensure an ample supply of renters and the downside to real estate has always been liquidity so the market will not be flooded with cheap supply because that would be stupid.

this is mostly a localized phenomenon this time but it is a good sign that real estate has become local again and the next downturn will be a simple inventory recession in those cases.

Fri, 12/20/2013 - 03:21 | Link to Comment Blankenstein
Blankenstein's picture

False.  I live in a supposed "non-bubble" area.  Some of the lower-priced suburbs are riddled with preforeclosures.  If you look up mortgages in the more affluent areas, the homes are mortgaged to the hilt.  People need to ask high prices to get out from under these ball and chains, and there are just not enough people who have that kind of income to bail these sellers out.  

Fri, 12/20/2013 - 15:19 | Link to Comment besnook
besnook's picture

you don't see what is happening. i used to laugh when shrub was pushing the ownership economy because i knew he meant the owners of the economy would own more. this post bubble push to buy rental property at the investment bank level is designed to push more people into rental property. by 2020 i predict it will be the norm for people to rent long term rather than buy property. the idea is to take the largest asset away from as many people in the middle and lower middle class as possible. those were/are the people most affected by the bubble and those are the people who are renting the investment property.the modern slave model, you'll have no chance to own assets.

on the other hand, high end homes in desirable places like hawaii are booming because asset owners are booming.

Fri, 12/20/2013 - 22:26 | Link to Comment Blankenstein
Blankenstein's picture

The institutional investors are going to dump these when they find no one can pay the rent they need to be profitable.  Prices will plummet and buyers at current prices are going to lose big.  Along with increasing interest rates and reductions in the FHA limits, housing is going to drop like a rock.  You'd be crazy to buy now.  Only someone who wants your money would advocate it.

Thu, 12/19/2013 - 22:42 | Link to Comment asa-vet52
asa-vet52's picture

Not everybody lives in California.

Fri, 12/20/2013 - 09:44 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

yet somehow we all live in the Hotel California, you can check out any time you like, but you can never leave.

Thu, 12/19/2013 - 23:12 | Link to Comment starman
starman's picture

Great article !

Thu, 12/19/2013 - 23:19 | Link to Comment new game
new game's picture

100 percent down...

fuck banks and bankers...

fuck the condesending assholes

fuck the office and fancy chair they sit in.

fuck the bungling bastards...

pay cash

Fri, 12/20/2013 - 02:13 | Link to Comment Notarocketscientist
Notarocketscientist's picture

Much ado about nothing - or shall we say these are all symptoms of this disease...  the end of cheap oil = the end of growth... and money printing will not cure this disease...


I am in Europe on holidays - it is very cold here - there are not many trees here - what is going to happen as the price of energy rises - and unemployment spikes even further - and tax revenues crash?  How will people keep warm?    Of course they will cut down the remaining trees as they were doing in Greece last year.... but how long will this last when you have hundreds of millions of people freezing and chopping down every last tree?


This is going to be worse than Mad Max.

Fri, 12/20/2013 - 02:31 | Link to Comment Finnman
Finnman's picture

Here in Finland we still are in Bubble 0.9, or Bubble 1.0

It has developed since 2006, maybe crashes 2016

Fri, 12/20/2013 - 05:44 | Link to Comment evernewecon
evernewecon's picture



Weighs more round turn 

later-year purchase and sale

of homes,  reducing the effect

of comparing pre-crash prices

(but which are present in the



The Fed's enabled the non-presentation

of banks' dead weight collateral (we've

been carrying it by way of real negative

returns on savings, and the Fed buys

mortgage securities not a market value,)

and so it's been like selling BMW's and

Yugo's one year but only BMW's the next.


Some overlap with other bundles, but this

includes the sharp effect of lock-out of many

foreclosures in California (should be non-

recourse, not holding mortgagors' feet to

the fire while those who SOLD the bubble 

pay banks' loss sharing.)


When rates blipped up in May:

@:32, "We Hit A Wall, We Hit

 A Wall Last Month And Sales 

Stopped In This Country And I'd 

Like To Know Whether You're

 (Robert Shiller) Seeing Anything

Ahead Of These Numbers Which

 Indicate The Incredible Decline 

In Transactions That Has 

Occurred During The Month

Of October." 

Jim Cramer, CNBC, 11/26/2013

Paying the banks to hold inventory

Diana Olick, CNBC, 



11 Million (Cites Zillow) 

Underwater Must Sell-Underwater 

Amount "Gap Insurance" Now 

Available, But Critics Say Don't Be

Afraid And Instead Put The Money

Regularly Into Self-Insuring

(Paying Down Principal.)



Zillow's Estimate Is Based On 

Their Selection Of Indices And



(But see the Jurow / Ritholtz 

at the top of this comment to

see why Zillow's estimate may

be regarded by some such as

myself as being too low.)





Fri, 12/20/2013 - 11:30 | Link to Comment highwaytoserfdom
highwaytoserfdom's picture

and then the boy named Benn

fraud and deception  again

sellen Yellen

certanly smellin

the world is waiting amen


Friday Limerick

Fri, 12/20/2013 - 14:43 | Link to Comment thefirstabomb
thefirstabomb's picture

You can relive the the housing bubble and tech bubble at the same time lol

Sat, 12/21/2013 - 10:44 | Link to Comment MedicalQuack
MedicalQuack's picture

Earlier this year I was in Phoenix and with the passing of my mother I had to sell her house and let me tell you the investors have done their job getting in bed with the resl estate companies and working it.  Luckily I was able to not sell to one of them and sold to an individual so I did my small part.  I don't know how big the carrot is they hang out there to get leads from real estate agents but there's more than just a normal listing process taking place, again I assume this due to the aggressive marketing I saw.  Time to watch the Quants of Wall Street documentary if you have not seen it.  I keep it in the footer of my blog as it's one that the layman can get a grip with and understand how it was all "math modeled"..and how models fail too.

Weapons of Math Destruction is a lecture series by a former Wall Street Quant is also very good as she lines it out exactly as it is.  You have to love the title of her lecture series...good stuff...and the more people that learn and wake up to what's going on and the control the banks and corporations have, then more will get "mad" and maybe something can be done to get the government to come out of their bliss and see the real story and how it works.

Do NOT follow this link or you will be banned from the site!